Duke Energy Florida filed a revised settlement agreement with the Florida Public Service Commission (FPSC) that provides long-term clarity for Florida customers, the company and other key stakeholders.
Developed collaboratively with the Office of Public Counsel and other consumer advocates, the revised settlement agreement contains provisions related to the Crystal River 3 nuclear plant (CR3), the proposed Levy nuclear project, the Crystal River 1 and 2 coal units, and future generation needs in Florida.
Major components of the revised settlement agreement include:
· Addressing issues related to the company’s decision to retire CR3, CR3 costs to be recovered in customer rates, and the acceptance of the Nuclear Electric Insurance Limited (NEIL) mediator’s proposal.
· Terminating the engineering, procurement and construction (EPC) agreement for the Levy nuclear project.
· Establishing a framework for Duke Energy Florida to construct or acquire natural gas-fired generation.
· Allowing recovery of investments in CR3, the Levy nuclear project and the Crystal River 1 and 2 coal units, subject to limited prudence reviews as outlined in the agreement.
· Extending the company’s current base rate freeze an additional two years, through the end of 2018.
Additionally, Duke Energy Florida will write-off $295 million associated with CR3 and $65 million related to the wholesale allocation of investments in the Levy nuclear project, as well as accelerate the recovery of $135 million in cash flows related to CR3.
As a result, Duke Energy will recognize pretax charges of about $360 million in the second quarter of 2013. These non-cash charges will be treated as special items and, therefore, excluded from Duke Energy’s adjusted diluted earnings per share.
The revised settlement agreement is subject to review and approval of the FPSC, which is expected by the end of 2013.
In February 2013, Duke Energy decided to retire CR3 rather than attempt a complex and costly repair. The company also announced resolution of its insurance coverage claims related to CR3 through a mediation process with NEIL.
Under the terms of the mediator’s proposal, customers and the CR3 joint owners receive the benefit of $835 million in insurance proceeds. This is the largest claim payout in the history of NEIL.
The FPSC currently has an open regulatory proceeding to review several issues, including: (1) the company’s previous decision to retire CR3; (2) the acceptance of the mediator’s proposal resolving NEIL coverage; (3) the costs of the CR3 repairs from February 2012 to the present; and (4) the components of the CR3 investment balance that are eligible for recovery beginning in 2017.
The revised settlement agreement, if approved, resolves the current pending regulatory docket before the FPSC.
In 2008, Duke Energy Florida announced plans to construct two 1,100-MW nuclear units in Levy County, Fla.
Duke Energy’s EPC agreement was based on the ability to obtain the Nuclear Regulatory Commission’s (NRC) combined construction and operating license (COL) by Jan. 1, 2014. As a result of delays by the NRC in issuing COLs for new nuclear plants, as well as increased uncertainty in cost recovery caused by recent legislative changes in Florida, Duke Energy will be terminating the EPC agreement for the proposed Levy nuclear project.
Although the proposed Levy nuclear project is no longer an option for meeting energy needs within the originally scheduled timeframe, Duke Energy Florida continues to regard the Levy site as a viable option for future nuclear generation and understands the importance of fuel diversity in creating a sustainable energy future. Because of this, the company will continue to pursue the COL outside of the nuclear cost recovery clause.
The revised settlement agreement provides for the recovery of costs related to the Levy project.
The company will make a final decision on new nuclear generation in Florida in the future based on, among other factors, energy needs, project costs, carbon regulation, natural gas prices, existing or future legislative provisions for cost recovery, and the requirements of the NRC’s COL.
The Crystal River 1 and 2 units consist of about 875 MW of unscrubbed coal capacity. The company is evaluating the potential retirement of both units due to compliance issues with environmental regulations, such as the mercury and air toxics standards.
If the company decides to retire these units prior to their normal retirement date of 2020, the settlement allows Duke Energy Florida to continue recovering annual depreciation in customer rates through the end of 2020, and recover any remaining net book value of the units in 2021 through the Capacity Cost Recovery Clause.